At the start of June 2014, the Beijing Municipal Human Resource and Social Security Bureau (BMHRSSB) and the Beijing Municipal Bureau of Statistics (BMBS) announced that the average monthly wage in 2013 was RMB 5,793 for Beijing. This number is important because social security contributions are assessed on employment income, and the maximum employment income assessed is capped at three times the average city salary of the prior year. Therefore, the wage ceiling for the 2014 monthly salary base for contribution is RMB 17,379.

Following this recent announcement, we will now give you a brief overview of China’s social insurance law and set out an illustration of social security contribution costs to employees and their employers based on the actual contribution rates in Beijing. Afterwards, we will take a closer look at benefits by employers and employees, certain conditions as well as possible complications for foreign employees in particular.

Overview of China’s new social insurance law

China’s social security law was promulgated by the central government but its administration and specific details are governed by local authorities. For example, employer and employee contribution rates and caps for each benefit vary according to local jurisdiction and are subject to annual changes and reforms. The contribution to China’s social security system is mandatory for Chinese employees and their employers as well as foreigners employed in China, except for foreigners in Shanghai.

Foreigners from countries which have entered into totalization agreements with China may be exempted from certain Chinese social security contributions in accordance with the specific coverage of the respective agreements. These agreements eliminate dual social security taxation, that occur when a worker from one country works in another country and is required to pay social security taxes to both countries on the same earnings. Currently, China has only entered into totalization agreements with two countries: Germany (covering both pensions and unemployment) and the Republic of Korea (pensions only).

Employers and employees must pay monthly premiums into three of the funds (pensions, medical expenses, unemployment) while employers in addition are required to make contribution to the last two (maternity and work-related injuries). As already mentioned the rates differ from province to province and are subject to caps.

Self-employed individuals, part-time employees who do not participate in the social security schemes through their employers, and unemployed individuals can participate in the pension and medical insurance schemes on merely a voluntary basis.

Social Security Contribution Costs in Beijing

In the following we calculate the social security contribution costs in Beijing for both the employer and the employee. As already mentioned, social security contributions are assessed on employment income, and the maximum employment income assessed is capped at three times the average city salary of the prior year.

In Beijing, the current social security contribution of the employee amounts to approximately 10.2% while the employer’s contribution lies at approximately 32.8% of the capped employment income.

Employers are required to withhold the monthly contribution for the employee and have the funds available to cover both the monthly employer and employee contributions. The payments are then settled with the local social security bureau and monthly contribution or payment methods depend on the local jurisdiction. For example, they may be paid by direct debit from the employer’s bank account or together with the monthly individual income tax settlement.

Social security contribution costs in Beijing

Conditions and Benefits for Foreign and Chinese Employees and their Employers

For each insurance there are benefits, certain conditions and possible complications for foreigners which we will cover in the following section.

Pension

Generally speaking, individuals need to make contributions for a minimum of 15 accumulative years before claiming pension. The retirement ages differ for certain industries but mostly lie at 55 years for men and 50 years for women (in the case of blue-collar work) or 60 years for men and 55 years for women (in case of white-collar work). The amount of retirement benefit depends on local regulations. The ages will likely change soon due to China’s demographic problem.

When a foreigner leaves China prior to the stipulated age for receiving pension, his individual account will be retained. If the foreigner later re-enters China for further employment, the payment period will continue to be calculated on a cumulative basis. Upon written application by the foreigner, the social insurance agency can pay the foreigner the amount in his individual account in one lump sum and terminate the basic pension relationship. The precondition here is that the employee intends to leave China for good. Upon the foreigner’s death, the amount remaining in the individual pension insurance account can be inherited.

Medical Insurance

Both employers and employees are required to make monthly medical insurance contributions. The medical insurance fund will refund medical expenses to designated hospitals that carry out the treatment. Patients will no longer have to pay treatment fees upfront and wait for compensation later.

The Medical Insurance only covers treatment undergone in and administered by government-approved hospitals and clinics (this excludes “international clinics”).

Unemployment Insurance

Employers are required to contribute to the unemployment insurance fund. However, only employees in certain local jurisdictions are required to make additional monthly contributions. In general, unemployed individuals are entitled to receive unemployment benefits for a maximum of 12 to 24 months (depending on the actual case) if contributions have been made for them for a period of no less than 12 months.

Additional conditions include that the individual did not terminate his or her employment voluntarily, has already completed an unemployment registration and is already in search of new employment. The amount of benefits provided is not related to the salary previously received or the premiums paid.

There are no unemployment benefits for foreigners, as a foreigner no longer working in China will not be permitted to continue living in China.

Work-related Injury Insurance

Only employers are required to make monthly work-related injury insurance contributions. The required monthly amount may, in some jurisdictions, vary according to the respective industry. The insurance generally covers all work-related injuries and occupational illnesses.

The work-related injury insurance fund will cover the costs of the treatment. The employer will still be required to pay some salary to the individual, although it will be less than full salary. Even if the employer has not made the required contributions, the individual can still claim the treatment and have it paid for through the insurance fund. The fund administrator will then be required to follow up on the employer in order to receive full compensation.

Maternity Insurance

Similar to the work-related injury insurance, only employers are required to make monthly maternity insurance contributions. The monthly payments from the insurance fund to women during their maternity leave will be based on the average salary of the women. That means a woman could receive more money during her maternity leave if she works at a company where other women receive a higher salary than her. To qualify for these benefits, the female employee’s employer must already have made monthly fund contributions for three months and the relevant medical treatment must be in compliance with China’s birth control policy. Under certain circumstance, male employees may also receive benefits.

With contributions by Markus Mönch (ECOVIS Beijing)

Manuela Reintgen has been living and working in Shanghai and Beijing since 2009 and recently joined ECOVIS Beijing as Manager of the Business Development team. Having focused on foreign direct investment into China for the last few years, she advises clients on all aspects of establishing and doing business in China. Contact: manuela.reintgen@ecovis.com

Ecovis Beijing is the trusted tax and legal advisor of several embassies and official institutions in China. It specializes in mid-sized international companies and focused on tax & legal advisory, accounting and auditing. If you’re interested in finding out more about tax and legal, don’t hesitate to sign up to our Newsletter or give us a call +86 10-65616609 (ext 811/806) or contact us directly via Beijing@ecovis.com